There are quite a few myths that surround Discretionary Fund Management, especially concerning the initial investment amount required and the difference between bespoke portfolios and entry-level portfolios. Ian McIver and Phil Miller, Business Development Managers at Whitechurch, discuss the differences in the following conversation.

IM: Hi Phil, you know I’m a member of a cycling group?

PM: Yes, I know the one.

IM: I was chatting to one of the younger members, who has just set up her own business, she was asking me about Discretionary Fund Management (DFM)?

PM: Interesting, what was she saying?

IM: She said her Mum and Dad are just about to retire and they’ve been recommended a DFM, they have got £550k between them in pensions and ISA’s and GIA’s.

PM: Sounds sensible.

IM: My friend said she wanted something similar, but because she’s just only started her business, she only has about £5k to invest and therefore thinks she can’t use a DFM.

PM: Yes she can. The thing is there are a few myths about DFM.

IM: Like what?

PM: She needs to understand the difference between her IFA running an advisory portfolio versus a discretionary one.

IM: What do you mean?

PM: Advisory is when her IFA runs her portfolio and has to contact her for changes, keep abreast of the markets and has to do due diligence on what investments are used, or discretionary where a professional investment firm runs it for the client. They will perform rebalances and switches. They will have in-depth knowledge to perform due diligence, employ risk management – and that’s just for starters!

IM: That’s what my friend’s parents said, but they also said the portfolio was going to be managed on a ‘bespoke’ basis and you need more than £250k to do that?

PM: Mmmm, it’s a bit like buying a suit – bespoke or off the shelf, they do very similar things.

If there are: specific ethical considerations, the desire to hold particular ‘cherished stocks’ directly, complex capital gains planning, specific income need or maybe diversification of different pots, then they may want a bespoke portfolio. But, DFM’s have similar services with low entry levels (£3k) which gives a discretionary managed portfolio, managed on the same investment strategy but without the bells and whistles, which will cost more. When your friends business thrives, then she may wish to use a bespoke service, if she needs it!

IM: Brilliant, we’ve got a social at the cycling club tonight, I will tell her everything then!